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Energy Time

As VentureBeat reported, there were a couple of positive financial events for some Massachusetts energy start-ups yesterday. Celunol, a company developing a process to make ethanol from non-food plants and other waste products, was purchased (or merged with) Diversa, a modest sized public company. Also, EnerNOC, a company which makes software to manage power grids more efficiently, filed to go public.

These may be some signs that the energy sector may be maturing sufficiently to justify venture capital investments. I've looked at a lot of new energy deals, and many of them are still in the science project stage where they are trying to prove out the potential benefits of their technology. Generally, technologies at this stage are too early to justify VC investment. As I wrote earlier, VCs have a time frame that they attach to deals in order to achieve their investment objectives. A science project will likely have a time frame that exceeds what most VCs can tolerate. And, of course, there is an even higher level of technical risk.

There are some sectors which are maturing more rapidly, particularly energy efficiency. The right products and services in this space can drop into existing infrastructure and designs and deliver power savings. This can be done on a small scale or a large scale, and both areas are interesting.

Ethanol and solar power are too areas which are overheating quite a bit in the venture area. Solar power companies have gone public with some high prices, and this drove a wave of venture investment where the valuations have exceeded in the value, in my opinion (an example of the hype being well ahead of the reality). However, other areas in the energy space -- efficiency and storage are two of my favorites -- are able to mature on a VC time scale.

I am hopeful that Massachusetts can develop a cluster of companies in the new energy space. That's an industry that will grow for a long time, and there is a lot of technology in our state that can be used to start some interesting companies here.